A surplus of ambition: can Europe rely on large primary surpluses to solve its debt problem?

Eichengreen, Barry; Panizza, Ugo

doi:10.1093/epolic/eiv016

Cited by 50 publications

(34 citation statements)

References 45 publications

(20 reference statements)

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“…Bohn (1998), in his analysis of US debt dynamics, argues that the primary surplus is an increasing function of the debt to GDP ratio. A further analysis of fiscal sustainability and primary surpluses in emerging markets by Celasun et al (2006) and recently on EU countries by Eichengreen and Panizza (2014) also reveal that high debt to GDP ratio is positively associated with the primary balance. Another reason for the focus on primary balance is the fact that adjustments to high debt levels via the primary balance are more preferred over adjustments through defaults or inflation (International Monetary Fund, 2002;Eichengreen and Panizza, 2014).However, the analysis of longer-term debt sustainability deserves to be more focused on the "growth" component of debt dynamics, especially in developing countries.…”

Section: Methodology and Datamentioning

confidence: 86%

“…5 The model we are utilizing is composed of public debt and other control variables: 3 So far, the application of Bohn's technique of assessing debt sustainability via the analysis of primary balances is largely limited to advanced and emerging countries due to requirements of longer time series for a reliable estimation. For further application, see also Mendoza and Ostry (2008); Mauro et al (2013); and Eichengreen and Panizza (2014). 4 See Panizza and Presbitero (2013) for more accounts of the diverse debt sustainability modeling exercise used in the literature.…”

Section: Linear Estimationmentioning

confidence: 99%

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Public Debt, Economic Growth, and Public Sector Management in Developing Countries: Is There a Link?

Megersa

Cassimon

2015

Public Admin. Dev.

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The article investigates whether differences in public sector management quality affect the link between public debt and economic growth in developing countries. For this purpose, we primarily use the World Bank's institutional indices of public sector management (PSM). Using PSM thresholds, we split our panel into country clusters and make comparisons. Our linear baseline regressions reveal a significant negative relationship between public debt and growth. The various robustness exercises that we perform also confirm these results. When we dissect our data set into "weak" and "strong" county clusters using public sector management scores, however, we find different results. While public debt still displayed a negative relationship with growth in countries with "weak" public sector management quality, it generally displayed a positive relationship in the latter group.The tests for non-linearity shows evidence of an "inverse-U"-shape relationship between public debt and economic growth. However, we fail to see a similar significant relationship on country clusters that account for PSM quality. Yet, countries with wellmanaged public sectors demonstrate a higher public debt sustainability threshold.

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Section: Methodology and Datamentioning

confidence: 86%

Section: Linear Estimationmentioning

confidence: 99%

Public Debt, Economic Growth, and Public Sector Management in Developing Countries: Is There a Link?

Megersa

Cassimon

2015

Public Admin. Dev.

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“…"Pre EC-agreement" corresponds to the government scenarios and is an improvement over the no policy change. However, this point is considered implausible by the EC, reflecting a "surplus of ambition" (Eichengreen and Panizza, 2016), and still has a high probability 0.85 of unsustainable dynamics. "Post EC-Agreement" presents further improvements, with probability 0.45 for unsustainable dynamics, but the sagacity of an agreement with about 50% chance of achieving its objectives is questionable.…”

Section: Italymentioning

confidence: 99%

Risk Management for Sovereign Debt Financing with Sustainability Conditions

Zenios

Consiglio

Athanasopoulou³

et al. 2019

gwp

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We develop a model of debt sustainability analysis with optimal financing decisions in the presence of macroeconomic, financial and fiscal uncertainty. We define a coherent measure of refinancing risk, and trade off the risks of debt stock and flow dynamics, subject to debt sustainability constraints and endogenous risk and term premia. We optimize both static and dynamic financing strategies, compare them with several simple rules and consol financing to demonstrate economically significant effects of optimal financing, and show that the stock-flow tradeoff can be critical for sustainability. We quantify the minimum refinancing risk and the maximum rate of debt reduction that a sovereign can achieve given its economic fundamentals, and extend the model to identify optimal timing for debt flow adjustments that allow the sovereign to go beyond these limits. We put the model to the data on three real-world cases: a representative euro zone crisis country, a low-debt country (Netherlands) and a high-debt country (Italy). These applications illustrate the use of the model in informing diverse policy decisions on sustainable public finance. The model is part of the European Stability Mechanism toolkit to assess debt sustainability and repayment capacity of member states in the context of financial assistance.

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“…Following Eichengreen and Panizza (2016), we build our control group using all nonoverlapping ten-year periods between 1970 and 2013 (1970-79; 1980-89; 1990-99; 2000-10) that: (i) do not overlap with one of the deficit episodes and (ii) do not overlap with any other period for which the ten-year average of the current account deficit exceeds the threshold.…”

Section: Large and Persistent Current Account Deficitsmentioning

confidence: 99%

Can Countries Rely on Foreign Saving for Investment and Economic Development?

2016

Self Cite

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A surprisingly large number of countries have been able to finance a significant fraction of domestic investment using foreign finance for extended periods. While many of these episodes are in low-income countries where official finance is more important than private finance, we also identify a number of episodes where a substantial fraction of domestic investment was financed via private capital inflows. That said, we find that foreign savings are not a good substitute for domestic savings. More often than not, episodes of large and persistent current account deficits do not end happily. Rather, they end abruptly with compression of the current account, real exchange rate depreciation, and a sharp slowdown in investment. We conclude that financing growth and investment out of foreign savings, while not impossible, is risky.

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A surplus of ambition: can Europe rely on large primary surpluses to solve its debt problem?

Cited by 50 publications

References 45 publications

Public Debt, Economic Growth, and Public Sector Management in Developing Countries: Is There a Link?

Public Debt, Economic Growth, and Public Sector Management in Developing Countries: Is There a Link?

Risk Management for Sovereign Debt Financing with Sustainability Conditions

Can Countries Rely on Foreign Saving for Investment and Economic Development?

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